Financial Analysis

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Betting The Company: BOMBARDIER Goes All-In on C Series Jets and Blows Up Its Balance Sheet

A brief analysis of Bombardier's woes and what we can learn from a company undertaking a massive project, consuming working capital, and ultimately destroying its balance sheet.

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Terms used by CPA's

Article

A CPA will competently assist an organization (whether it is a privately held business, a publicly owned corporation, or a nonprofit organization) with preparing reports on its financial performance. Such reports help owners and managers make operational decisions, enable creditors to evaluate loan applications, and provide individuals with information to make investment decisions.

 

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Credit Rules (Axioms)

Article

If short-term credit suppliers are paid by asset conversions, then the primary interest should be centered on the balance sheet and their focus of attention should be liquidity.

 

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Standard Ratios

Tool

Liquity Ratios

  • current Ratio
  • Acid Test

Debit - Equity Ratios

  • Current Debt to Tangible Net Worth
  • Total Debt to Tangible Net Worth
  • Working Capital
  • Net Worth

 

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Financial statement simple analysis

Article

In today's environment the obtaining of Financial Statements from a customer is becoming virtually impossible. A good credit professional needs to sell his customer on the benefits of supplying at least a common size balance sheet and income statement in order to justify a credit limit sufficient to meet both yours and the customer's needs.

 

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Understanding Accounts Receivable Metrics: DSO, CPI, CEI

Article

Finance professionals calculate DSO by dividing Total Accounts Receivable (A/R) by Total Credit Sales multiplied by the number of days in the measurement period.

For companies using Collection Productivity Index (CPI), it is the amount of cash collected per collector as a % of the opening A/R for each fiscal quarter. As quarterly sales are not linear month to month, (heavily weighted in a particular month) you will find this to be...

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Fraudulent Financial Information

Article

Often, the depth and breadth of a credit analysis is based on the risk associated with a potential or existing customer.  For example, when the risk is considered low, a simple trade reference check might suffice whereas in cases where the stakes are high, many seasoned and trained credit managers will resort to financial statement analysis.  Aside from the challenge of getting your customers to furnish financial statements, determining the reliability of such documents can prove to be quite tricky.

 

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Common Forms of Financial Statement Fraud

Article

In the summer edition of To Your Credit, we published an article on the work of Professor Messod D. Beneish from the Kelley School of Business, Indiana University on the subject of earnings manipulation.  In the sample of 74 companies that Pr. Beneish looked into for his research, he concluded that the typical manipulators “overstated earnings by recording fictitious, unearned, or uncertain revenues, recording fictitious inventory, or improperly capitalizing costs.”

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Cash Flow Myths

Article

It's just too easy to mislead the average investor in Canada. Financial reports can be arcane and confusing even for professionals. Adding to the problem are regulators who don't care to clean up pervasive scams, much less make financial statements more usable for investors.

 

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All About Choice

Article

Experience has told us that when the economy turns bad, it’s time to expect more accounting shenanigans from public companies. This can happen in three ways.

Sometimes, a company has been using aggressive accounting for years, and a dismal economic picture makes it difficult to hide the old chicanery any further. Other times, a firm decides to use accounting tricks to mitigate the impact of poor operating results.

 

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Return on Equity Financial Expression

Article

Efficient use of assets is important for the profitability and growth of any organization. One of the easiest ways to gauge whether a company is an asset creator or cash user is to look at the return on equity (ROE) ratio. ROE is a strong measure of how well management is creating value for shareholders.

 

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International Financial Reporting Standards

Article

Effective January 1, 2011, IFRS will replace current Canadian GAAP accounting standards for Canadian publicly accountable enterprises (PAE) and Government Business Enterprises. As of this date as well, private companies have the option of adopting IFRS or the new Canadian standards developed specifically to meet their users' needs which are referred to as the Accounting Standards for Private Enterprises.

 

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Financial Ratios and Related Tools

Article

A ratio by itself is an incomplete figure that could be misleading if analyzed in isolation. To perform an analysis, inter-related ratios should be examined and calculated over a period of time to see the trends, and then compared to ratios of industry or peers.

 

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